Hargreaves Lansdown has axed the £2.7 billion Newton Higher Income fund from its Wealth 150 list of recommended funds, citing concerns with the level of covered-call options and special cum-dividends used by the fund.
The fund, which is managed by Tineke Frikkee, is traditionally one of the highest yielding funds in the sector. However, Hargreaves Lansdown says the decision by BP to suspends its dividend has impacted the fund, which held an 8% weighting in the company, and resulted in the manager raising both the covered-call options and special cum-dividend levels.
Meera Patel, a senior analyst at Hargreaves Lansdown, says that although the firm does not expect the level of use of these strategies will remain high – BP is set resume paying dividend in the first six months of 2011 – the group has some short term concerns.
She says: “The increased use has driven up the yield and we feel this could potentially affect the fund’s capital growth. We have therefore removed it from the Wealth 150 while we monitor its progress. (article continues below)
“At this stage we are not suggesting investors sell. If a high level of income is your priority, we believe there is every reason to generally continue holding the Newton Higher Income Fund. If, however, you have new money to invest and you would prefer a fund with a lower yield but less potential constraints on the capital growth, we would suggest that you consider other equity income funds.”